Bolster your business on 4 pillars to thwart digital disruptions

August 1, 2017

 

Companies are exploring for new offerings & business models, & exploiting their core, at the same time, to land on opportunities to disrupt before they are disrupted. But, where will such opportunities come from? Digital forerunners develop a compelling vision for how to lead the disruption that digital technology creates, not follow it. These companies place the digital imperative at the top of the C-suite agenda and define both a clear point of arrival for the strategy and an equally clear set of steps for getting there. They empower the entire organization to learn what customers want and then digitize to deliver—even if that involves taking substantial risks. They also view the effort holistically, choreographing and coordinating digital solutions across the value chain so they work together to improve products and services.  Digital disruptions are happening in every sector & geography. No matter how strong the balance sheets and market share—and sometimes because of those very factors—incumbents can’t seem to hold back the tide of digital disruptions. The champions of disruption are far more often the attackers than the established incumbent. The good news for incumbents is that many industries are still in the early days of digital disruption.

 

What’s the secret of those incumbents that do survive—and sometimes even thrive? One aspect surely relates to the ability to recognize and overcome the typical pattern of response (or lack thereof) that characterizes companies in the incumbent’s position. This most often requires acuity of foresight and a willingness to respond boldly before it is too late, which usually means acting before it is obvious you have to do so.

 

Breaking strategy into smaller chunks for Micro-SPIN attacks

 

We all know strategy comes up with investment priorities for the business.  That definition is too broad for execution to handle in a co-creation session. So, we break down the investment priorities into smaller executable components. Each component becomes a potential candidate for an internal Micro-SPIN attack.  As discussed earlier, internal the Micro-SPIN attack is co-create session that enables strategy and execution together just like the Co-SPIN, but on a smaller scale. The right team comes together to address both strategy and execution in the Micro-SPIN with clear rules of engagement. Next derive design principles that will enable the executable components. Clearly design the enhanced operating model that will enable the objective of the strategy component. As we win these Micro-SPIN attacks and establish credibility, and demonstrate reliability of the process, to build momentum, they can be replicated for other strategic imperatives. As we scale the success across the enterprise, we would have created enough cadences to start influencing the culture. Every Micro-SPIN must revolve around customer-centricity, innovation, speed and value-focus that become the 4 critical elements essential to get ahead of disruption.

 

 

 Pillar 1 - Customer-centricity

 

As the term itself suggests, customer-centricity entails putting the customer at the heart of everything a company does. Yet most companies don’t operate that way. Instead, they tend to separate their customer insights into a few isolated functions, while focusing far more on their financial performance and on the moves their competitors make. The situation opens a real opportunity for companies to create a sustainable competitive advantage by taking deliberate steps to better understand customers and by considering how every decision the company makes will ultimately affect them.

 

Like typical organizational transformations, making a product focused company fully customer-centric will be difficult. Transformations will have to be driven from top down with ownership at the highest levels of the company. However, organizational challenges are inevitable. It will be the only competitive way to serve the customer. This undertaking involves making a profound shift toward consumer-centric planning and management—a shift that requires a lot of hard work. Yet there are clear rewards for companies that get it right.

 

Most business leaders stress the importance of understanding customers to stay relevant in today’s fast-changing competitive environment. Why, then, do many companies focus inward and, as a result, overlook or underestimate change signals?

To survive and flourish, it follows that companies must continually match strategy and implementation to their competitive environments. A minimum condition to adapt to external change is that we detect and understand it. Customers provide an essential window into change not only in their perceptions, needs, preferences, behaviors, and emotions but also in the technology, competition, and other factors shaping these. To be truly customer centric, companies must use customer insights in most major business decisions and core processes, not just customer-facing ones.

 

Once companies make this shift, they will need new metrics to gauge the strategy’s effectiveness. First companies need to focus less on product profitability and more on customer profitability. Second, companies need to pay less attention current sales and more to customer Lifetime Value (CLV). Third, companies need to shift their focus from brand equity (the value of a brand) to customer equity (the sum of the lifetime values of their customers). Customer equity has the added benefit of being a good proxy for the value for the firm, thereby making marketing more relevant to shareholder value. Fourth, companies need to pay less attention to current market share and more attention to customer equity share (the value of a company’s customer base divided by the total value of the customers in the market). Market share offers a snapshot of the company’s sales position at the moment, but customer equity share is a measure of the firm’s long-term competitiveness with respect to profitability.

 

Pillar 2 - Innovation driven

 

In many ways, digital forerunners look a lot like startups when it comes to innovation. Leadership is committed to encouraging a culture of experimentation that rewards calculated risk-taking. These companies learn to embrace failure; they use rapid prototyping and small-scale trials to learn quickly and iterate toward the right solution. They develop tight feedback loops enabled by advanced analytics to test, learn and test again.

 

To improve innovation, executives of a company need to view the process of transforming ideas into commercial outputs as an integrated flow. The first of the three phases in the value chain is to generate ideas; this can happen inside a unit, across units in a company, or outside the company. The second phase, is to convert ideas; or more specifically, select ideas for funding and developing them into products or practices. The third is to diffuse those products and practices. Innovation can happen while reimagining the offerings, rethinking the operating model, updating the technology infrastructure, or exploring new business models.

 

We define innovation as creativity plus delivery, by focusing on four requirements for innovating at scale: strategy, pipeline of ideas, execution, and organization.  The innovation value chain offers a tailored and systematic approach to assessing the company’s innovation performance and determining which of the best practices would be best to adopt. This also can help executives can unleash a stream of new products and services. However, the value chain needs to be incorporated into the Micro-SPIN and scaled along with the solutions into the enterprise-wide innovation value chain.

 

Dialing up customer responsiveness and speeding innovation through digital technology often requires organizational realignment. Digital forerunners break down silos and increase communication between functions by restructuring roles and reimagining how teams interact. This would often require empowering a senior leader to direct traffic and assemble the resources to guide the digital transformation. If there are clear capability gaps, the company fills them quickly, either by investing in-house or finding the right external partner.

 

Pillar 3 - Speed

 

Speed has long been seen as an important attribute of strong innovators. Speed enables companies to catch consumer trends as they emerge, leave competitors flat-footed, and even drive costs down and quality up. Increasing speed to market leads to numerous financial and nonfinancial benefits. Greater agility has the potential to boost a company’s top and bottom lines, and flexible and mobile consumers demand it.

 

The financial benefits are often directly measurable and vastly exceed the up-front costs of introducing speed-to-market approaches to the organization. Shortening innovation and product development cycles and reducing time to market can be a powerful source of competitive advantage. But a growing emphasis on speed, even among companies that are already fast, suggests that a new realization is dawning: the demand for speed is itself increasing.

 

Start-ups, for example, are notoriously well known for acting quickly, but once they grow beyond a certain point they struggle to maintain that early momentum. Equally, large and established companies often become complex, bureaucratic, & lethargic, because the rules, policies, and management layers developed to capture economies of scale ultimately hamper their ability to move fast.

 

Truly agile organizations, paradoxically, learn to be both stable (resilient, reliable, and efficient) and dynamic (fast, nimble, and adaptive). To master this paradox, companies must design structures, governance arrangements, and processes with a relatively unchanging set of core elements—a fixed backbone. At the same time, they must also create looser, more dynamic elements that can be adapted quickly to new challenges and opportunities.

 

Pillar 4 - Value-focus

 

Building an unambiguous link between the customer experience and value requires patience and discipline to invest early in an analytic approach. It is easy to skip this step for the sake of speed, but that is a mistake every time. When establishing a link to value is done well, it provides a clear view of what matters to customers, where to focus, and how to keep the customer experience high on the list of strategic priorities. Companies investing to improve the customer experience must be clearer about what it is actually worth and exactly how the improvements will generate value. To construct this link, start by defining the customer behavior that creates value for your business and then follow customer satisfaction over time to quantify the economic outcomes of different experiences.

 

Conclusion

 

Understanding these four necessary pillars should help demystify the challenge posed by the onslaught of digital technology. Possibilities emerge across the opportunity matrix while re-imagining the offerings, rethinking the value-chain and/or during business model innovation. The hurdles for deciding which digital products, services or capabilities to pursue are really no different than the hurdles for any other product, service or capability. Leaders continually ask themselves: Where will digital technology have the greatest impact on our value chain and how can we invest proactively to get ahead of the curve? How can we use technology to better understand our customers and deliver what they want? Is leadership aligned and committed to the vision? Have we engaged the front line to both design and embed our digital strategy?

 

 

 

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